Social Security: Important Changes for 2016 and Later Years

Social Security: Important changes for 2016 and later years

The Bipartisan Budget Act of 2015 creates significant rule changes for Social Security. The provisions of the new law go into effect May 1 of 2016, and they may have a substantial impact on the financial plans of many Americans. Here is a brief explanation of how it’s been, what’s changed, and who is affected.

How it’s been: You may have heard of a strategy called “file and suspend,” where one spouse files for benefits at full retirement age and immediately suspends their own benefit. This enabled their spouse to file a “restricted application” for spousal benefits only. In this way both earners would allow their own benefit to grow while collecting the spousal benefit.

Another strategy for married couples was to have the lower-earning spouse file and receive reduced benefits between age 62 and full retirement age. The higher earner delays filing for benefits in order to allow the larger benefit to grow. The higher-earning spouse could file a restricted application at full retirement age to receive their spousal benefit only while allowing their own benefit to grow.

What’s changed:

–Under the new rules, anyone who files and suspends will be suspending any and all benefits payable to others on his or her earnings record. This includes benefits for spouses and dependent children. This ends the efficacy of “file and suspend.”

-When anyone files for benefits, they will be deemed to file for both individual and spousal benefits, and will receive whichever benefit is higher. This will be the end of restricted applications, though they will be permitted for a few more years.

Who is affected:

-If you are currently filed and suspended, or are receiving spousal benefits on a restricted application, your benefits are not affected. Initial drafts of the legislation proposed retroactive enforcement, but this was amended before the law was passed.

-If you will reach full retirement age prior by April 30, 2016, you can still file and suspend, and benefits based on your record will be payable to your spouse and dependents. On May 1, 2016 and after, the new rules will apply to “file and suspend.”

-If you will turn 62 or older this year, you may still file a restricted application.

-If you were born in 1954 or later, there will be no option to file a restricted application. You will be required to file for all benefits, or wait on all benefits.

-Individuals who file and suspend to collect a lump-sum retroactive reinstatement will be able to resume benefits in future as long as the suspension occurs before May 1, 2016. After that date, anyone who files and suspends can only resume in the month following the suspension, or at age 70.

Note that surviving spouses who have earned their own retirement benefit will still have the right to choose whether to claim the widow/widower’s benefit or their own benefit, and will still be able to switch to their own benefit at a later age if it ends up being larger than the survivor benefit. This applies to those surviving spouses (including divorced spouses) who were married at least ten years and have not remarried by age 60.

If you need some help understanding the options in your particular situation, please don’t hesitate to call us at 408-551-6100 or toll free 800-927-8314 and ask to speak with one of our financial advisors.